On the surface, the changes made by Wayne Swan in his mini budget look mild.
But underneath, he is making a dramatic change to corporate and savings Australia.
And it will greatly affect the activities of a vast number of middle class, private enterprise executives in Australia.
Let’s start with his biggest single measure, which will initially only affect those companies with turnover over $1 billion. But Swan is planning to drive the measure down into companies with $20 million or more. So by 2016, the vast majority of companies that trade in Australia (including the bulk of small enterprises) will have to pay their tax instalments monthly rather than quarterly.
Initially, in 2012-13, this will bring forward $5.5 billion in revenue. Which will mean that our large companies will see their cash reserves drained, and/or they will increase their bank borrowing.
From January 2014, companies with a turnover of $1 billion or more will be affected, and from January 2015, companies with turnover of $100 million or more will be hit.
This draining of cash from corporate Australia will affect the ability of companies to invest in their enterprises and create employment.
One of the most common ways to reward executives is to allow them to salary sacrifice and receive products or services that the company provides, or are integral to their business.
As from today, the government will remove the concessional fringe benefits tax arrangement (FBT) if they are accessed by way of salary sacrifice. This measure will apply from today for future salary sacrifice arrangements. However, from April 1, 2014, it will cover all the prior arrangements.
Apart from corporate products and services, this will also affect salary sacrifices to use corporate boxes at sporting events.
The government looked hard at further taxing superannuation but realised that, given the lavish unfunded benefits given to top public servants, it would cause an enormous revolt, and jeopardise Australian confidence in superannuation. However the government has made a small increase in the levy it applies to self-managed superannuation funds and will make the funds pay the levy much earlier.
Although it raises $390 million over the forward estimates period, it will not jeopardise the growth of self-managed funds.
But the government has really given our big superannuation fund managers, including industry, and the large retail providers a huge kick.
A lucrative source of revenue is the management of dormant or lost funds. This money is to be transferred to the government. This not only has a temporary boost to government revenue but it intensifies the squeeze on AMP, MLC and BT as they’re caught between self-managed funds and the industry fund movement.
While a great deal of the Swan measures are bringing the revenue forward, rather than creating new revenue, they will affect the liquidity of corporate Australia. Our large companies are in good shape and most can afford it but our medium and smaller companies are struggling and they will find this an enormous looming blow. They’re also the largest employers in the land.
The treasurer in 2014-16, better hope that the economy has recovered before the changes come into effect.